Home / Economy / How Russia-Turkey Conflict Impacts on Georgia?

How Russia-Turkey Conflict Impacts on Georgia?

The Russia-Turkey relations have rushed into a blind alley after Turkish fighter aircrafts threw down Russian SU-25 hornet. Some circles have even actualized the issue of abolishing the Karsi Agreement signed in October 1921.

Russian President Vladimir Putin accuses personally the family of Turkish President R.T. Erdogan of smuggling crude oil from Syrian and Iraqi Islamic insurgents…

How really neighbouring Georgia’s power sector will be impacted from Russia-Turkish conflict economist Zurab Garakanidze explains;

The tensions between these countries affect the geo-economics perspectives of Georgia too. It should be noted that Turkey imports 98% of the consumed gas, 92% of the consumed oil and 20% of coal, including the country buys 60% of the imported gas, 35% of the imported oil and 30% of the imported coal from the Russian Federation. Turkey generates 31% of consumed electricity by natural gas. The country receives a part of gas and electricity from Georgia…

Electric Energy Industry

Georgian vice Prime Minister Kakha Kaladze noted that the logic extension of the Black Sea Transmission Network (BSTN) implies the formation of a joint network with Russia, Azerbaijan and Armenia in order to, finally, establish a regional energy market.

  1. Kaladze made the statement at the session of the Energy Charter Conference Ministerial in December 2015 – “Promotion of Regional Cooperation through Cross-boarder Energy Trading”.

“By the financial support of the EU financial institutions Georgia has implemented the Black Sea Transmission Network (BSTN) project. The BSTN operation started in 2013. This project will empower the Georgian transmission system connection with the neighboring countries, especially with Turkey and ensure the reliability of exports, imports and transit of electricity in the Region. This is one of the most important infrastructural projects in the power sector that aims to provide 700 megawatt transmission between the Georgian and Turkish networks”.

The Georgian Vice Prime Minster also stressed: “The logic extension of the BSTN project implies a formation of a joint network with Russia, Azerbaijan and Armenia in order to create a  joint energy market. It should be also noted we have real technical fundament for implementing this project, but the regional security problems may frustrate this process. Namely, the Metsamori nuclear power plant (NPP) in Armenia generates excessive electricity and the country exports it to Iran and receives natural gas in exchange (this operation is rather a barter exchange, then exports).

RosAtom, which owns shares in Metsamori, plans to extend the exploitation period of the second power block (407.5 megawatts) for 10 years.

Metsamori’s annual generation is 2.5 billion kw/h, a 35% of Armenia’s total generation. Georgia with excessive portion of hydro power plants in its western regions needs to ensure balanced supply of electricity to the eastern part of the country. To this end, the government has developed a three-stage strategy for developing the Georgian power system (2015-2025).

For the past years, Azerbaijan increases the portion of natural gas in electricity generation. Therefore, the country has balanced system of generation and transmission of electricity.

Meanwhile, these countries have less achievement in relation to the electric energy systems of two big neighbors – Russia and Turkey.

Turkey has extremely increased electricity consumption for the last two decades. The country is mainly based on the generation of steam power plants that work on mineral resources. However, the country plans to construct three nuclear power plants. Russian RosAtom has already launched the construction of Akuiu NPP in the city of Mersi, at the Mediterranean Sea. The NPP was to comprise 4 units of ВВЭР-1200 Russian power blocks, but the recent tensions have led to the project suspension, despite the Russian party has made serious investments in the project implementation. A Japan-France consortium also plans to launch construction of the second big NPP in 2017, while the a Chinese consortium will commence the third NPP construction in 2019.

Thus, Turkey was expected to become the regional center of power generation by putting these facilities into exploitation by 2020, while the Russian Federation was to become the region’s largest investor in the NPP sector. Russia owns 34 reactors in 10 regions and its atomic sector generates 24 000 megawatt power a year. Despite the outdated infrastructure, the government has announced a plan for enhancement of the main facilities and to reach 30% generation in the atomic sector by 2030 and 50% – by 2050.

Moreover, the International Energy Charter that was signed in June 2015, including by Georgia, Armenia, Turkey and Azerbaijan outlines Georgia’s perspectives to become an electricity hub in the Region. Georgia genuinely has such a potential. Mr. Kakha Kaladze noted:

“Today Georgia finished the construction/rehabilitation of 500 kilowatt transmission lines with Russia and Azerbaijan. The 500 kilowatt transmission line construction works with Armenia will be also finished in the near future”.

However, Armenia and Russia will not supply electricity to Turkey in the near future. Therefore, Georgia will have to increase generation to export electricity to Turkey. To this end Georgia is implementing large-scale HPP construction projects. Nevertheless, the projects are accompanied by a number of ecological problems too.

Is it possible to establish a joint regional energy market in the near future amid the current political tensions between the potential partners? We suppose this is impossible at this stage. The point is that Azerbaijan and Armenia adhere to the 1994 UN ceasefire agreement after the 1990s hostilities, the Russia-Georgia weak economic relations is slowly growing after the 2008 hostilities. Therefore, we welcome the idea of creating a joint regional electricity market, but we suppose the International Energy Charter Conference Ministerial made focus on the midterm perspectives, not the nearest future.

Thus, Turkey cannot receive electricity from Armenia for its needful eastern parts because of Armenia-Azerbaijan confrontation. Moreover, Turkey will not receive Russian electricity from the  Kavkasioni network through Akhaltsikhe-Borchkha transmission line, after the Russia-Turkey tensions. Therefore, in the near future Georgia cannot become a specialized regional hub for distributing electricity from various sources to various directions…

Oil, Swiss Company Role

The Russia-Turkey confrontation may make the most negative impact on transportation of the Caucasian oil to global markets.

TengizShevrOil international consortium exports oil from the Tengiz field and Russian Seaports through the Turkish gulfs of Bosporus and Dardanelle. On December 8, 2015 Kazakh Economy Minister Erbolat Dossayev noted at the government meeting that in December 2016 the country would launch commercial extraction of oil from the giant offshore field of Kashagan, the Caspian Sea sector.

The CPC reconstruction project calls for building 10 new oil pumping stations (2 in Kazakhstan and 8 in Russia) and reconstructing 5 ones. A total of 6 new oil terminals will be built in Russia (each one with 100 000 cubic meter capacity). The third exports berths will be also arranged near Novorossiysk. Kazakhstan has also started replacing the 88 kilometer section by the big-diameter pipeline. The project’s investment value is 5.4 billion USD.

Nevertheless, the Russia-Turkey cold war may thwart the project implementation despite the ongoing works. The first emergency signal appeared in 2011, when the flood destroyed the new terminal of CPC near the city of Krimski, Novorossiysk.

The second factor is related to the Moscow-Ankara political tensions that are aggravated by the ecological Cold War. The point is that the CPC reconstruction completion will at least triple the workload of Turkey gulfs at the end of 2016. Currently, an ocean liner crosses the Bosporus Gulf every 12 minutes in the center of Istanbul, while this time interval may be narrowed to 4 minutes.

After the Cyprian щшд tanker Nassia collapsed in 1994, Turkey tries to prevent the Bosporus Gulf overloading. Ankara provides tireless efforts to maximally reduce the number of oil tankers in the Gulf to lower oil leakage threats in the center of the giant metropolis. Therefore, despite the requirements of the 1936 Montro and 1982 UN Sea Conventions, the Turkish Authorities permanently try to reduce the intensity of sailing of tankers.

The country requested that navigation pilots and tugboats accompany oil tankers over 200 meters in length in the daylight period, then the country proposed to build Samsun-Ceyhan and Burgas-Aleksandropulos land pipelines. The country also initiated to establish the Gulfs Ecology Foundation with 30 million USD capital, but in vain. The Gulf’s workload will be expectedly enlarged after completion of the CPC reconstruction. It cannot equally satisfy the interests of all power manufacturers of Turkey, Russian and the Caspian basin. Amid the Russia-Turkey tensions, the appearance of the so-called Big Kazakh Oil will supposedly fully disorder the situation there. As a result, Turkey may even close Gulfs.

The above-mentioned factors suggest that a new alternative route should be developed that would contain less problems. We think the alternative route could transport Kazakh oil through Russia, Georgia and Turkey crossing the Abkhaz section.

If the corresponding agreement is timely signed, the Kazakh oil transportation will be carried out under the supervision of SGS Swiss company, by the consent of the World Trade Organization (WTO).

This route will be more profitable at the end of 2016 compared to other existing projects. Similar project was relevant in early 1990s and it called for transporting oil to Turkey via Georgia, namely, via the autonomous Republic of Abkhazia.

 

The oil transit will enable Russia and Georgia to receive additional transit revenues, but it should be also noted that the Georgia-Russia confrontational background will create serious obstacles for implementing the alternative route. Therefore, it is necessary that Kazakhstan and other Central Asian countries also be interested in this project.

Natural Gas

The Russia-Turkey relations are worsening in the gas sector too. Ankara is trying to replace Gazprom with a 60% ratio in the Turkish natural gas consumption, by other suppliers. Turkey planned to employ a major part of this gas for electricity generation for the nearest 10 years.

In December 2015 Moscow announced suspension of the Turkish Stream project implementation. The first pipeline with 15.5 billion cubic meter annual output was designated for Turkey, while another similar pipeline was designated for the southeastern European countries.

Turkey receives 30% of the total consumption from Iran through Tavriz-Erzurum gas pipeline, but in winter period Iran’s domestic consumption grows and the gas supply to Turkey is sometimes suspended. Therefore, eastern parts of Turkey are supplied by Russian natural gas and from the South Caucasian pipeline. The latter pipeline crossing Georgia operates at a halved workload. For example, the pipeline transported only 4,5 billion cubic meters in 2013 and 6 billion cubic meters in 2014.

The natural gas transportation volume will increase in this pipeline starting 2018, when Turkey will put into exploitation TransAnatolia gas pipeline, as a constituent part of the South Gas Corridor.

In December 2015 Turkish Prime Minister Ahmet Davutoglu met with Azerbaijani President Ilham Aliyev and the parties decided to accelerate the TransAnatolian Gas Pipeline construction. Moreover, in the same period Turkish President R. T. Erdogan visited Qatar and signed a long-term memorandum on liquefied gas supply to Botas, the state energy company of Turkey.

No information was spread on the agreed volume of liquefied gas supply. This signifies Turkey does not fully trust the South Gas Corridor and insures the country by liquefied gas.

Currently, Turkey receives liquefied gas from Algiers and Nigeria, annual 4.4 and 1.2 billion cubic meters, respectively, but Turkey cannot increase liquefied gas imports, because the total capacity of its two LNG terminals makes up only 1.5 billion cubic meters. Moreover, Turkey faces difficulties with replacing Russian natural gas by alternative sources. Indeed, recently discovered gas fields in the eastern part of the Mediterranean Sea creates perspectives for natural gas supply to Turkey, but disordered relations with Israel, Greece and Egypt and the northern Cyprus occupation  may frustrate similar perspectives.

Therefore, Turkey cannot become gas supply hub and this failure will make negative impact on Georgia’s gas transit perspectives too.